Social Security reform

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Nick Lafleur’s commentary on Social Security in the April 20 Channels thoughtfully discusses some of the major issues regarding Pres. Bush’s proposal to partially privatize Social Security. The opinion piece does, however, contain a couple of factual errors and a couple of mischaracterizations.
Mr. Lafleur states that workers contribute payroll “taxes to the Social Security Administration where the government matches them.” In fact, workers contribute 6.2% of their salaries up to $90,000, a sum that is then matched by a contribution from their employers. The payroll tax on employees and employers is the sole source of funding for Social Security. There is no supplemental government funding.
Mr. Lafleur asserts incorrectly that the current retirement age is fixed at 65. A law passed in 1983 went into effect last year and will gradually raise the retirement age until it reaches 67 in 2024. Raising the retirement age further would alleviate the mid-century solvency problem the system faces but not solve it entirely, as Mr. Lafleur suggests.
The author mischaracterizes Pres. Bush as predicting an “imminent catastrophe” for Social Security. Actually, Bush has acknowledged that the system is solvent until 2041 but argues that it is better and easier to do a fix sooner rather than later. This is one point upon which there should be no dispute, regardless of one’s opinions on personal accounts.
Mr. Lafleur also engages in hyperbole when discussing the issue of management fees for the personal accounts set up by workers under Bush’s plan. These fees would be capped at less than 1%, mirroring the cap on fees for personal accounts in the existing program for federal workers. This very restrictive cap would hardly provide “huge potential profits” for financial institutions, as Mr.Lafleur contends.
These criticisms notwithstanding, Mr. Lafleur offers some compelling arguments against partial privatization. The very real solvency problem the system faces down the road can be addressed better by tweaking some of the variables: the payroll tax rate, the $90,000 cap on contributions, the benefit formula for future retirees and the retirement age. My fear is that, if Bush’s plan is blocked, inertia will prevail. Opponents of personal accounts must step up to the plate and offer an alternative.

Fred Hofmann
6509 Sabado Tarde, #4
Goleta, CA 93117
Ph,: (805)968-9302